Capital market-relevant press releases, 2012-05-15, 03:30 PM
ThyssenKrupp examining strategic options for Steel Americas plants in Brazil and the USA
The Executive Board of ThyssenKrupp AG today informed the Supervisory Board of ThyssenKrupp AG of its decision, in parallel with further technical and commercial optimization, to examine strategic options in all directions for the plants of Steel Americas in Brazil and the USA. The Supervisory Board noted this with assent. The background to this decision is that the economic parameters have changed significantly since the development of the strategy of an integrated network with the slab plant in Rio de Janeiro and the processing plant in Mobile, Alabama.
Dr. Heinrich Hiesinger, Executive Board Chairman of ThyssenKrupp AG: “We have said that we want to sustainably improve our performance and carry out regular strategic reviews of all our businesses. This also applies to our biggest challenge Steel Americas. We continue to believe that both plants will hold leading positions in their respective markets in terms of technology and conversion costs. But since the plans for the project were made the economic parameters both in Brazil and in the USA have changed from our original assumptions. There are clear reasons that now call this strategy into question. We therefore have to examine whether it still makes sense strategically to operate the two plants in a common integrated network.”
The strategy for Steel Americas developed in 2007 was based on two basic premises: Slabs were to be produced at low cost in Brazil and shipped with cost advantages to the USA. After processing they would then be sold on the NAFTA target market with a corresponding price premium reflecting their high quality. In addition to the general business downturn due to the financial and economic crisis, the different rates of growth in the two regions are calling this strategy into question. Whereas the US economy is showing no major momentum, Brazil is enjoying strong growth. This is having corresponding effects on the cost and demand situation in the two countries.
Production costs in Brazil are rising disproportionately due to increasing labor costs, inflation effects and in particular the appreciation of the Brazilian currency. In addition, ore prices have increased sharply and the new ore pricing model brings disadvantages to Steel Americas compared with some backwards integrated suppliers in the USA.
At the same time, due to slow demand, it will probably only be possible to achieve the price premiums on the US market both now and in the medium term with specific steel grades and in specific sectors. ThyssenKrupp is very confident that it will be able to realize corresponding price premiums with automotive customers due to the quality and grades of its high-strength steels and previously largely unavailable characteristics such as larger sizes. But for the products manufactured for other sectors and distributed via service centers, intense competition leaves virtually no scope for differentiation of this kind.
The viability of an integrated strategy with slab production in Brazil and high-margin marketing in the USA is therefore exposed to considerable risks. That is why the Executive Board has decided to investigate strategic options in all directions for both plants. This may involve a partnership or a sale to a best owner whose strategy can better utilize the quality and the specific market capability and competitiveness of the plants.
Irrespective of this strategic review, ThyssenKrupp will push ahead with the ramp-up of the two plants. Clear progress has already been made on this. The plant in Brazil produced around 1.7 million tons of high-quality slabs in the first half of the current fiscal year. In the same period, the US plant shipped around 1.4 million tons of steel to customers. The start-up of coke oven battery C is proceeding to plan. As a result it will be possible to complete the operational ramp-up by the end of the current fiscal year, after which the optimization phase will begin.